It’s not expected to pass this year, but a bill moving through legislative committees for the second year gives an indication of what’s to come for local units of government hosting electric facilities.

Those units of government benefit from personal property tax charged utilities on the value of equipment to produce and distribute electricity.  But, explained Loren Solberg, lobbyist for Itasca County, this value can fluctuate. It can, for instance, go down with depreciation or go up with improvements to the equipment. 

That fluctuation is bad for budget making, both for the governmental units and for the utility.  

Over recent years, Itasca County has seen the overall valuation from the four-unit Clay Boswell plant in Cohasset decrease about two percent per year because of depreciation, said Jeff Walker, county treasurer.   

To complicate matters, older plants like Clay Boswell pay tax on machinery while most of the machinery in newer plants built since 1994 have been exempted from personal property tax through individual state laws.  Boswell’s newest unit 4 was completed in 1980.

House file 1985 and Senate companion bill 2193 would change the method of valuing personal property for electric utilities.  The valuation would be made up of several parts:  electric generation capacity valuation (based on nameplate capacity in kilowatts), electric production valuation (varies with kilowatt hour production), spent fuel (tons stored on nuclear plant site), substation valuation (based on megavolt-amperes of transformers), transmission and distribution line valuations (based on miles of line).  

The tax is based on these known quantities times a set rate, rather than adding up individually assessed amounts on equipment.  That makes the overall valuation and annual tax estimate relatively stable.  For generation and production capacity, the rate is tiered so that the lowest rate is used for hydroelectric and the highest for fossil fuel.  The production capacity rate is adjusted annually by changes in gross domestic product for non-residential investment.  

Investor owned utilities would be affected.  Municipal and rural electric cooperative distribution systems, and municipal generators would be exempt.  A generation and transmission cooperative like Great River Energy could make a one time election not to be subject to the new valuation system. 

The last part of the bill addresses replacement aid for those communities that lose tax base under the new valuation method, for instance when a plant closes and stops generating electricity.  The aid would be paid out of the state’s general fund. 

It’s this discussion that has stalled the bill in committee, explained Solberg.  How long would it be granted, how fast would the amount change…there are moving variables that need to be worked out.

“Itasca County is watching this closely,“ Rep. Sandy Layman said.  “And, as it currently stands, I believe the county would be happy with this change in taxing method as would the city of Cohasset.”

As to the future, “I would expect legislation will not move forward until all stakeholders are either in support or neutral on the new structure,” she explained. 

Minnesota Power, which owns and operates Clay Boswell, sees an advantage to that new structure.  The bill is “not trying to lessen the tax,” explained Pat Mullen, senior vice-president, external affairs for ALLETE, the parent of Minnesota Power.  “It’s just redistributing it so it’s more predictable.  It would still benefit local communities.”